FOCUS: Yandex, Mail.Ru stand out as main beneficiaries of rising online ad market

By Yekaterina Yezhova

MOSCOW, Nov 20 (PRIME) -- Confident growth of online advertising has pushed Russia’s advertising market to the fifth position in Europe, bringing it closer to Italy by volume. Analysts said local Internet giants will definitely take advantage of the trend with Yandex occupying half of the market, while Mail.Ru Group’s business is more diversified.

“A realistic outlook says that the market of media communications in Russia will reach its all-time high of 400 billion rubles this year. This is how it confidently occupies the fifth position in the European rating by approaching the Italian market. In fact, we can speak about the restoration of international positions of the Russian advertising industry,” said Alexei Kovylov, president of the Russian Association of Communication Agencies (RACA), which published its advertising market report for January–September on November 9.

“At that, the Russian market has some specific features in its current configuration. First of all, it manifests in super-concentration of media investments in two segments: television and the Internet, accounting for more than 80% of the market.”

The Internet advertising volume spiked 23% on the year to 115–116 billion rubles, close to 116–117 billion rubles of television advertising, which grew 13%. The total advertising market grew 14% to 285–287 billion rubles, value-added tax excluded.

“We see that the Internet advertising segment continues to grow at the same rate as in January–June, which is by 23%, and almost reached TV commercials as of the end of the three quarters. The main input in keeping such high growth rates is ensured by such segments as video advertisements in the Internet, mobile advertisements, search advertisements, and performance tools,” Boris Omelnitsky, president of researcher IAB Russia, said in the report.

The association’s data are preliminary and agreed upon with IAB Russia, whose experts could revise the results as of the end of the year, he said.

“RACA has not shown a breakdown of Internet advertising by segments since 2017. As of the end of 2016, 43% of advertisements placed in the Internet were presented by advertisements in search systems, and the remaining by banners, video commercials and others. The banner segment was the most fast growing with the rates of more than 20% in 2016, and advertisements in search engines added 16%,” Natalya Milchakova, deputy director of Alpari’s analytical department, told PRIME.

“We think growth rates of various segments of Internet advertisements will be maintained at above 10% per year in the upcoming five years. With time this market will also slow down, but growth potential is still high. Russia’s Internet penetration is still 75%, and online advertising has some room to expand with an increasing number of Web surfers in the country.”

Pay-per-click is the most widely spread payment model that directs traffic to Web sites. Advertisers pay publishers when advertisements are clicked. “The price depends on the volume and structure of audience, as well as theme of a resource. It’s mainly related to advertisements in search systems and contextual advertisements,” the analyst said.

Another model is cost per impression, when advertisers pay each time their advertisement is displayed. “It is frequently applied to banners, and publishers often charge payment from advertisers for 1,000 displays,” Milchakova said.

Yandex and Mail.Ru Group

The country’s two Internet giants profit from the trend. Revenue from sales of online advertisements accounted for 94% of Yandex’ total revenue for January–September, while the indicator is less than a half of revenue of Mail.Ru Group.

Yandex’s online advertising revenue jumped 21% on the year to 62.3 billion rubles in January–September, while its total revenue increased 23% to 66.2 billion rubles.

Mail.Ru Group’s revenue from online advertising grew 28.6% to 16.1 billion rubles, while total revenue advanced 35.2% to 39.9 billion rubles.

Brokerage BCS said Yandex and Mail.Ru Group are still dominating players and beneficiaries of the online advertising markets.

The Alpari analyst said Mail.Ru Group is more diversified since it mainly works with mobile applications. “Besides, the company is now part of mobile operator MegaFon, which will correspondingly imply that its activities will be tightly intertwined with specifics of its controlling holder,” Milchakova said.

“At present, Yandex’s footing on the online advertising market is much stronger than the one of other search engines, especially, after positions of Google on the local market had been elbowed out a bit.”

(59.6325 rubles – U.S. $1)

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